The Metaverse: From fiction to fact. First coined in Neal Stephenson’s 1992 novel Snow Crash, the term “Metaverse” is a portmanteau of “meta” – which comes from ancient Greek meaning “beyond” and “verse” – an abbreviation of “universe”. Converging physical, augmented, virtual, and mixed reality, the Metaverse is where real life meets digital life, a world where the “digital twins” of yourself, your friends, and your home will co-exist in a parallel universe. In short, the core characteristics of the Metaverse are:
What started out as a novel idea from science fiction is fast becoming a reality today. The onslaught of the Covid-19 pandemic and the rise in social distancing have driven more and more activities online – from work to education to basic social interactions. Shared human experiences in a digital environment will be the new normal and this is already happening in the gaming space (think Fortnite, Animal Crossing, and Roblox). A new digital society is on the way, bringing a paradigm shift to global civilisation. Advertising, retailing, and remote work will never be the same again.
Big Tech, without question, sees huge potential in the Metaverse as the latter is widely deemed as the “next version of the Internet”. The announcement by Facebook is of particular significance given its dominance in the social media space. One could only imagine that if Facebook – the world’s largest social media company – gets involved in the Metaverse, will the others follow suit? The answer is an obvious yes.
In the initial phase of development, we believe the Metaverse will be driven by the following:
Robust outperformance for Metaverse theme underpinned by strong fundamentals. Using the Ball Metaverse Index (BALLMETA Index) as proxy, the Metaverse theme has outperformed global equities substantially since 18 June. We expect the strong momentum to persist given its exposure to innovative and disruptive companies in the Technology space. In aggregate, the theme possesses stronger operating margins and higher return-on-equity (ROE) than the broader market. On a segmental basis, we believe that the eventual mass migration into the Metaverse will be a significant growth driver for: (a) Game Engines, (b) Big Tech, and (c) Semiconductors.
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